Question 1

Which of the following is not a necessary condition for income to be included in gross income?

Accepted Answer

A)  income must be realized. 
B)  income must be paid in cash. 
C)  income cannot be excluded by law. 
D)  income must be made available to a taxpayer on the cash basis. 
E)  All of the choices are correct. 
A)  income must be realized. 
B)  income must be paid in cash. 
C)  income cannot be excluded by law. 
D)  income must be made available to a taxpayer on the cash basis. 
E)  All of the choices are correct.

Question 2

Interest earned on a Federal Treasury bond is excluded from gross income (for federal tax purposes).

Accepted Answer

A) True 
 B)False

Question 3

Generally, 85 percent of Social Security benefits are included in income of high-income taxpayers.

Accepted Answer

A) True 
 B)False

Question 4

For tax purposes, unearned income means income that has not yet been realized.

Accepted Answer

A) True 
 B)False

Question 5

Mike received the following interest payments this year. What amount must Mike include in his gross income (for federal tax purposes)?

Accepted Answer

A)  $1,450 
B)  $2,300 
C)  $2,650 
D)  $3,550 
E)  $4,400 
A)  $1,450 
B)  $2,300 
C)  $2,650 
D)  $3,550 
E)  $4,400

Question 6

Vincent is a writer and U.S. citizen. After being out of work for the 1st half of the year, Vincent moved permanently to Ireland on July 4. He worked for an Irish magazine and earned $110,000 in salary from July 4th - December 31st. Earlier in April of this year Vincent received a $1,500 refund of the $3,600 in state income taxes his previous employer withheld from his pay last year. Vincent claimed $7,150 in itemized deductions last year (the standard deduction for a single filer was 6,350). Vincent wants to elect to use the foreign-earned income exclusion to the extent he is eligible. Calculate Vincent's gross income for this year. (Round your final answer to the nearest whole dollar amount and assume there are 365 days in the year.)

Accepted Answer

$59,277 = $110,000 - $51,523 + $800
$103

Question 7

The exclusion ratio for a purchased annuity is the cost of the annuity divided by the interest rate.

Accepted Answer

A) True 
 B)False

Question 8

Earnings from Internal Revenue Code Section 529 plans and Coverdell education savings accounts are excluded from gross income if the earnings are used to pay for qualifying educational expenditures for college students (and not for elementary or secondary education).

Accepted Answer

A) True 
 B)False

Question 9

This year Larry received the first payment from an annuity that promises to pay him $3,000 per month for the rest of his life. The IRS tables indicate that given Larry's age, he should expect to receive 310 monthly payments. The cost of the annuity to Larry was $620,000. How much of the first $3,000 payment should Larry include in gross income?

Accepted Answer

$3,000 − [$620,000/310] = $1,000
A part

Question 10

This year, Fred and Wilma, married filing joint, sold their home (sales price $750,000; cost $200,000). All closing costs were paid by the buyer. Fred and Wilma owned and lived in their home for 20 years. How much of the gain is included in gross income?

Accepted Answer

A)  $550,000 
B)  $300,000 
C)  $250,000 
D)  $50,000 
E)  None 
A)  $550,000 
B)  $300,000 
C)  $250,000 
D)  $50,000 
E)  None

Question 11

This year Zach was injured in an auto accident. As a result, he received the following payments. Zach received $18,000 of disability pay. Zach has disability insurance provided by his employer as a nontaxable fringe benefit. Zach's employer paid $4,300 in disability premiums for Zach this year.
Zach's hospital bills totaled $4,500 and were paid by his health insurance. Zach has health insurance provided by his employer as a nontaxable fringe benefit. Zach's employer paid $6,250 in health insurance premiums for Zach this year.
What amount must Zach include in his gross income?

Accepted Answer

A)  $22,500 
B)  $18,000 
C)  $4,500 
D)  $10,550 
E)  Zero - None of these benefits is included in gross income. 
A)  $22,500 
B)  $18,000 
C)  $4,500 
D)  $10,550 
E)  Zero - None of these benefits is included in gross income.

Question 12

When a taxpayer sells an asset, the entire proceeds from the sale must be included in gross income regardless of the cost of the asset.

Accepted Answer

A) True 
 B)False

Question 13

Barter clubs are an effective means of avoiding realization for tax purposes.

Accepted Answer

A) True 
 B)False

Question 14

Community property laws dictate that income earned by one spouse is treated as though it was earned equally by both spouses.

Accepted Answer

A) True 
 B)False

Question 15

Anna received $15,000 from life insurance paid upon the death of her grandmother. Anna can exclude the entire amount of the life insurance from her gross income.

Accepted Answer

A) True 
 B)False

Question 16

Brad was disabled for part of the year and he received $11,500 of benefits from a disability insurance policy purchased by Brad's employer. Brad must include all $11,500 of benefits in his gross income because Brad was not taxed on the disability insurance premiums paid by his employer.

Accepted Answer

A) True 
 B)False

Question 17

Fred must include in gross income a $7,500 payment received from his neighbor to compensate Fred for the emotional distress he suffered when his neighbor accidentally ran over his dog.

Accepted Answer

A) True 
 B)False

Question 18

Bernie is a former executive who is retired. This year Bernie received $250,000 in pension payments and $10,000 of social security payments. What amount must Bernie include in his gross income?

Accepted Answer

A)  $250,000 
B)  $255,000 
C)  $258,500 
D)  $260,000 
E)  Zero 
A)  $250,000 
B)  $255,000 
C)  $258,500 
D)  $260,000 
E)  Zero

Question 19

Frank received the following benefits from his employer this year. What amount must Frank include in his gross income?

Accepted Answer

A)  $54,450 
B)  $57,350 
C)  $56,250 
D)  $59,150 
E)  Zero - these benefits are excluded in gross income. 
A)  $54,450 
B)  $57,350 
C)  $56,250 
D)  $59,150 
E)  Zero - these benefits are excluded in gross income.

Question 20

This year Mary received a $200 refund of state income taxes that she deducted on her tax return last year. Mary included a total of $4,000 of state income taxes when she itemized deductions last year. What amount of the refund, if any, should Mary include in her gross income this year?

Accepted Answer

A)  $200 is included because Mary itemized her deductions last year. 
B)  $200 is included if itemized deductions exceeded the standard deduction by $200. 
C)  $200 is included because itemized deductions exceeded the standard deduction. 
D)  $200 is included even if Mary claimed the standard deduction. 
E)  None of the choices are correct - refunds of state income taxes are not included in gross income. 
A)  $200 is included because Mary itemized her deductions last year. 
B)  $200 is included if itemized deductions exceeded the standard deduction by $200. 
C)  $200 is included because itemized deductions exceeded the standard deduction. 
D)  $200 is included even if Mary claimed the standard deduction. 
E)  None of the choices are correct - refunds of state income taxes are not included in gross income.

Exam 5: Gross Income and Exclusions

Which of the following is not a necessary condition for income to be included in gross income?

Interest earned on a Federal Treasury bond is excluded from gross income (for federal tax purposes).

Generally, 85 percent of Social Security benefits are included in income of high-income taxpayers.

For tax purposes, unearned income means income that has not yet been realized.

Mike received the following interest payments this year. What amount must Mike include in his gross income (for federal tax purposes)?

The exclusion ratio for a purchased annuity is the cost of the annuity divided by the interest rate.

Earnings from Internal Revenue Code Section 529 plans and Coverdell education savings accounts are excluded from gross income if the earnings are used to pay for qualifying educational expenditures for college students (and not for elementary or secondary education).

This year, Fred and Wilma, married filing joint, sold their home (sales price $750,000; cost $200,000). All closing costs were paid by the buyer. Fred and Wilma owned and lived in their home for 20 years. How much of the gain is included in gross income?

When a taxpayer sells an asset, the entire proceeds from the sale must be included in gross income regardless of the cost of the asset.

Barter clubs are an effective means of avoiding realization for tax purposes.

Community property laws dictate that income earned by one spouse is treated as though it was earned equally by both spouses.

Anna received $15,000 from life insurance paid upon the death of her grandmother. Anna can exclude the entire amount of the life insurance from her gross income.

Brad was disabled for part of the year and he received $11,500 of benefits from a disability insurance policy purchased by Brad's employer. Brad must include all $11,500 of benefits in his gross income because Brad was not taxed on the disability insurance premiums paid by his employer.

Fred must include in gross income a $7,500 payment received from his neighbor to compensate Fred for the emotional distress he suffered when his neighbor accidentally ran over his dog.

Bernie is a former executive who is retired. This year Bernie received $250,000 in pension payments and $10,000 of social security payments. What amount must Bernie include in his gross income?

Frank received the following benefits from his employer this year. What amount must Frank include in his gross income?

This year Mary received a $200 refund of state income taxes that she deducted on her tax return last year. Mary included a total of $4,000 of state income taxes when she itemized deductions last year. What amount of the refund, if any, should Mary include in her gross income this year?

An Introduction to Tax

Tax Compliance, the IRS, and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview, Dependents, and Filing Status

Individual Deductions

Investments

Individual Income Tax Computation and Tax Credits

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Compensation

Retirement Savings and Deferred Compensation

Tax Consequences of Home Ownership

Entities Overview

Corporate Operations

Accounting for Income Taxes

Corporate Taxation: Nonliquidating Distributions

Corporate Formation, Reorganization, and Liquidation

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S Corporations

State and Local Taxes

The Us Taxation of Multinational Transactions

Transfer Taxes and Wealth Planning

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